Dharmesh Shah

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Is Your Startup Practicing Inward Facing Dog?

By Dharmesh Shah on May 15, 2009

For those curious about the title, it’s a reference to “downward facing dog” (one of the most widely reognized yoga poses).  downward facing dog

Is your startup practicing inward facing dog?  That is, are you overly focused on things going inside the company with too little attention on what might be going on outside the company?

Signs That Your Startup Is Practicing Inward Facing Dog

1.  More than a few days go by and you haven’t talked to a customer other than to provide support or try to sell them something.

2.  When people bring up things like “Did you hear about X (a direct competitor) doing Y?” most of the time, you hadn’t heard the news and some of the times, you didn’t even know who X was.  Note:  I don’t advocate being obsessed about your competition — and I particularly don’t advise following them (i.e. X did Y, so I have to do Y…).  But, I think there’s a lot that can be learned simply by observing your competitors. 

3.  You haven’t located 5 people in your industry whose blogs you think are worth reading regularly.  I don’t care what industry you’re in, there are bloggers out there writing things you should be reading.  Even if you disagree with them.  Even if you think your industry is “broken” and you’re out to transform it.  In fact, especially if you think your industry is broken.  Read, read, read. 

4.  You haven’t been to an industry conference in a couple of years (or ever).  Yes, budgets are tight, and most of the content from these things makes it onto the web anyways, but it’s not about the content.  Yes, it’s unlikely you’re going to get a lot of customer leads.  But, it’s not about those those things.  It’s about learning.  It’s about the real-time, in-person conversations.  (This coming from an introvert — who hates real-time conversations).

5.  You’re not watching the news about VC financings, acquisitions and IPOs in your market (or adjacent markets).  Even if you don’t plan on raising funding.  Even if your startup is going to crush everyone else, getting a sense of how the money is flowing in your industry is important to know.  What kinds of companies are getting funded?  Who is funding them?  What other deals have they done?  Who is getting bought?  You don’t need to get obsessed with this, but just a quick scan once a week is well worth it. 

6.  You don’t meet with other startup founders that are at your stage — or beyond.  Though we founders like to believe that our situations are unique and nobody else can possibly have the same kinds of challenges and problems we do — it’s just not true.  There are many, many patterns that continually reoccur in startups.  Even weird things that you think are too arcane to be common. 

What other signs do you think there are that a startup is too inward focused?  What do you do to make sure you stay in touch with what’s going on outside your four walls? 

Topics: strategy
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The Attention Economy vs. The Wallet Economy

By Dharmesh Shah on May 8, 2009

The attention economy has been all the rage for startups for a while. 

Here’s the general line of reasoning with the attention economy:

1.  Grab user’s attention.

2.  Sell that attention to others.

Like many abstractions, this one is a tad over-simplified, but not so much as to not be useful.  A bunch of modern-day startups fall into the above pattern.  Get a mass of users to your shiny-new website then monetize that attention through things like advertising (basically reselling that attention). 

Why do so many web startups take this approach?  I think it’s for two primary reasons:  1) it’s easier and 2) it’s more fun.  To understand this better, let’s contrast the attention economy to that other economy:  the wallet economy.  In the wallet economy, instead of competing for a share of people’s attention, you’re competing for a share of their wallet.  wallet economy

The wallet economy presents one big problem for many entrepreneurs (including me):  It involes this unpleasant activity known as selling something.  If you’re a software entrepreneur, I’m going to bet that if you had to pick amongst things like writing code, selling stuff and cleaning the office — selling would likely be at the bottom of your list.  So, entrepreneurs will prefer doing (almost) anything other than selling.  Enter AdSense, stage left. “I’ll just put AdSense on my site”.  If the entrepreneur is not completely delusional, she’ll add statements like:  “Yes, it’s only pennies, but you have to start somewhere, and we’ll grow the traffic over time.”

What’s really nice about the whole attention economy is that you can become a revenue-generating company today (revenue-generating is becoming fashionable again).  And, because there are advertising networks out there like AdSense, you’re not dependent on all that selling muckiness.  You get to avoid that whole “convincing customers to pay business”. 

But, I have a few issuese with the attention economy, from a software perspective (I’ve written about this before, but I’m going to be a bit crisper this time):

1.  Attention Is A Scarce Resource:  Attention is a bit limited and fragmented.  I’d ague that it’s getting increasingly harder to get people’s attention.  The level of attention I can devote to stuff has stayed pretty much the same throughout the years.  I might make more money now than I did 10 years ago, but the level of attention I can spend hasn’t gone up much — certainly not proportionally to income.

2.  Battle of User and Advertiser:  There’s a conflict between getting monetizable attention and solving the user’s problem.  Let me explain:  Back in the good old days of software, users had a problem, you wrote software that solved that problem, and they paid you for it.  Nice and simple.  All your incentives were to solve the problem as well as you could for as many people as possible.  Now, contrast this with a web application that is monetizing attention.  Now, not only do you need to make the user happy (so they’ll visit in the first place), you have to make the advertiser happy as well (because they’re buying that user’s attention).  In fact, to make any real money you have to get better and better at interrupting the user well enough so that they pay attention to the ads.  Basically, you have to balance the needs of your users and the needs of your advertisers. That’s hard.

3.  Advertisers Make Lousy Customers:  Even with all the fancy content-matching algorithms that pair up a given ad to a given context, I still don’t like advertising.  I really don’t.  I can see why it’s important in a lot of industries — but I don’t know that software is one of them.  Given the choice between solving a user’s problem (which I understand, and hopefully care about) and an advertiser’s problem — I’d choose solving the user’s problem.  There’s more creativity involved.  It’s more focused.  I can control it better.  There’s only so much multi-variant testing you can do to get that CTR from 1.2% to 1.4%. 

I’ve never had a business that focused on the attention economy (however, I have built tools like twitter grader that generate lots of traffic), so I may be missing something here.  On the other hand, I have built startups that focus on the wallet economy, and I must say, my simple-minded nature likes the notion of solving problems and getting people to pay me to do so.  Call me old-fashioned.

What do you think?  Have you succeeded with the attention economy (succeeded, as in, you have a decent chance of making in your lifetime?)  Has the monetization model changed at all that would make the attention economy more viable?  Would love to read your thoughts in the comments.

Topics: strategy
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